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Accounting for Different Uncertainties: Implications for Climate Investments?

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  • Svenja Hector

    (ETH Zurich Department of Management, Technology and Economics)

Abstract

The paper clarifies the link between changes in risk aversion and the effect on the consumption discount rate. In a general framework that can cope with various forms of uncertainty, it is shown that the response of the consumption discount rate to a change in risk aversion depends on some fundamental properties of the considered uncertainties. The application of this general result to specific forms of uncertainty extends existing results to more general forms of risk and yields a new result on preference uncertainty.

Suggested Citation

  • Svenja Hector, 2013. "Accounting for Different Uncertainties: Implications for Climate Investments?," Working Papers 2013.107, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2013.107
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    More about this item

    Keywords

    Discount Rate; Risk Aversion; Kreps-Porteus-Selden; Risk-Sensitive Preferences; Uncertain Preferences; Climate Change;
    All these keywords.

    JEL classification:

    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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